How America Lost Its Way. By Niall Ferguson
http://online.wsj.com/article/SB10001424127887324798904578527552326836118.htmlThe Wall Street Journal, June 8, 2013, on page C1
It is getting ever harder to do business in the United States, argues Niall Ferguson, and more stimulus won't help: Our institutions need fixing.
Not everyone is an entrepreneur. Still, everyone should try—if only once—to start a business. After all, it is small and medium enterprises that are the key to job creation. There is also something uniquely educational about sitting at the desk where the buck stops, in a dreary office you've just rented, working day and night with a handful of employees just to break even.
As an academic, I'm just an amateur capitalist. Still, over the past 15 years I've started small ventures in both the U.S. and the U.K. In the process I've learned something surprising: It's much easier to do in the U.K. There seemed to be much more regulation in the U.S., not least the headache of sorting out health insurance for my few employees. And there were certainly more billable hours from lawyers.
By the Numbers
433: Total number of days it takes in the U.S. to start a business, register a property, pay taxes, get an import and export license and enforce a contract
368: Total number of days it took to do the same in 2006
7: U.S. ranking, out of 144 countries, on the World Economic Forum's 2012-2013 Global Competitiveness Index
1: U.S. ranking on the 2008-2009 Global Competitiveness Index
33: U.S. ranking for its legal system and property rights in 2010 on the Fraser Institute's Economic Freedom index, out of 144 countries
9: U.S. ranking for its legal system and property rights in 2000
Sources: 'Doing Business'; World Economic Forum; Fraser Institute
This set me thinking. We are assured by vociferous economists that economic growth would be higher in the U.S. and unemployment lower if only the government would run even bigger deficits and/or the Fed would print even more money. But what if the difficulty lies elsewhere, in problems that no amount of fiscal or monetary stimulus can overcome?
Nearly all development economists agree that good institutions—legislatures, courts, administrative agencies—are crucial. When poor countries improve their institutions, economic growth soon accelerates. But what about rich countries? If poor countries can get rich by improving their institutions, is it not possible that rich countries can get poor by allowing their institutions to degenerate? I want to suggest that it is.
Consider the evidence from the annual "Doing Business" reports from the World Bank and International Finance Corporation. Since 2006 the report has published data for most of the world's countries on the total number of days it takes to start a business, get a construction permit, register a property, pay taxes, get an export or import license and enforce a contract. If one simply adds together the total number of days it would take to carry out all seven of these procedures sequentially, it is possible to construct a simple measure of how slowly—or fast—a country's bureaucracy moves.
Seven years of data suggest that most of the world's countries are successfully making it easier to do business: The total number of days it takes to carry out the seven procedures has come down, in some cases very substantially. In only around 20 countries has the total duration of dealing with "red tape" gone up. The sixth-worst case is none other than the U.S., where the total number of days has increased by 18% to 433. Other members of the bottom 10, using this metric, are Zimbabwe, Burundi and Yemen (though their absolute numbers are of course much higher).
Why is it getting harder to do business in America? Part of the answer is excessively complex legislation. A prime example is the 848-page Wall Street Reform and Consumer Protection Act of July 2010 (otherwise known as the Dodd-Frank Act), which, among other things, required that regulators create 243 rules, conduct 67 studies and issue 22 periodic reports. Comparable in its complexity is the Patient Protection and Affordable Care Act (906 pages), which is also in the process of spawning thousands of pages of regulation. You don't have to be opposed to tighter financial regulation or universal health care to recognize that something is wrong with laws so elaborate that almost no one affected has the time or the will to read them.
Who benefits from the growth of complex and cumbersome regulation? The answer is: lawyers, not forgetting lobbyists and compliance departments. For complexity is not the friend of the little man. It is the friend of the deep pocket. It is the friend of cronyism.
We used to have the rule of law. Now it is tempting to say we have the rule of lawyers, which is something different. For the lawyers can also make money even in the absence of complex legislation.
It has long been recognized that the U.S. tort system is exceptionally expensive. Indeed, tort reform is something few people will openly argue against. Yet the plague of class-action lawsuits continues unabated. Regular customers of Southwest Airlines recently received this email: "Did you receive a Southwest Airlines drink coupon through the purchase of a Business Select ticket prior to August 1, 2010, and never redeem it? If yes, a legal Settlement provides a Replacement Drink Voucher, entitling you to a free drink aboard a Southwest flight, for every such drink coupon you did not redeem."
This is not the product of the imagination of some modern-day Charles Dickens. It is a document arising from the class-action case, In re Southwest Airlines Voucher Litigation, No. 11-cv-8176, which came before Judge Matthew F. Kennelly of the District Court for the Northern District of Illinois. As the circular explains: "This Action arose out of Southwest's decision, effective August 1, 2010, to only accept drink coupons received by Business Select customers with the purchase of a Business Select ticket on the date of the ticketed travel. The Plaintiffs in this case allege Southwest, in making that decision, breached its contract with Class Members who previously received drink coupons," etc.
As often happens in such cases, Southwest decided to settle out of court. Recipients of the email will have been nonplused to learn that the settlement "will provide Replacement Drink Vouchers to Class Members who submit timely and valid Claim Forms." One wonders how many have bothered.
Cui bono? The answer is, of course, the lawyers representing the plaintiffs. Having initially pitched for "up to $7 million in fees, costs and expenses," these ingenious jurists settled for fees of $3 million "plus costs not to exceed $30,000" from Southwest.
Canada's Fraser Institute has been compiling an "Economic Freedom" index since 1980, one component of which is a measure of the quality of a country's legal system and property rights. In the light of a case like the one described above, there is nothing surprising about the recent decline in U.S. performance. In 2000 U.S. law scored 9.23 out of 10. The most recent score (for 2010) was 7.12.
Such indexes must be used with caution, but the Fraser index is not the only piece of evidence suggesting that the rule of law in the U.S. is not what it was. The World Justice Project uses a completely separate methodology to assess countries' legal systems. The latest WJP report ranks the U.S. 17th out of 97 countries for the extent to which the law limits the power of government, 18th for the absence of corruption, 19th for regulatory enforcement, 22nd for access to civil justice and the maintenance of order and security, 25th for fundamental rights, and 26th for the effectiveness of criminal justice. Of all the former British colonies in the report, the U.S. ranks behind New Zealand, Australia, Singapore, Canada, Hong Kong and the United Kingdom—though it does beat Botswana.
The decline of American institutions is no secret. Yet it is one of those strange "unknown knowns" that is well documented but largely ignored. Each year, the World Economic Forum publishes its Global Competitiveness Index. Since it introduced its current methodology in 2004, the U.S. score has declined by 6%. (In the same period China's score has improved by 12%.) An important component of the index is provided by 22 different measures of institutional quality, based on the WEF's Executive Opinion Survey. Typical questions are "How would you characterize corporate governance by investors and boards of directors in your country?" and "In your country, how common is diversion of public funds to companies, individuals, or groups due to corruption?" The startling thing about this exercise is how poorly the U.S. fares.
In only one category out of 22 is the U.S. ranked in the global top 20 (the strength of investor protection). In seven categories it does not even make the top 50. For example, the WEF ranks the U.S. 87th in terms of the costs imposed on business by "organized crime (mafia-oriented racketeering, extortion)." In every single category, Hong Kong does better.
At the same time, the U.S. has seen a marked deterioration in its World Governance Indicators. In terms of "voice and accountability," "government effectiveness," "regulatory quality" and especially "control of corruption," the U.S. scores have all gone down since the WGI project began in the mid-1990s. It would be tempting to say that America is turning Latin, were it not for the fact that a number of Latin American countries have been improving their governance scores over the same period.
What is the process at work here? Perhaps this is a victory from beyond the grave for classical Western political theory. Republics, after all, were regarded by most ancient political philosophers as condemned to decadence, or to imperial corruption. This was the lesson of Rome. Democracy was always likely to give way to oligarchy or tyranny. This was the lesson of the French Revolution. The late Mancur Olson had a modern version of such cyclical models, arguing that all political systems were bound to become the captives, over time, of special interests. The advantage enjoyed by West Germany and Japan after World War II, he suggested, was that all the rent-seeking elites of the pre-1945 period had been swept away by defeat. This was why Britain won the war but lost the peace.
Whatever the root causes of the deterioration of American institutions, smart people are starting to notice it. Last year Michael Porter of Harvard Business School published a report based on a large-scale survey of HBS alumni. Among the questions he asked was where the U.S. was "falling behind" relative to other countries. The top three lagging indicators named were: the effectiveness of the political system, the K-12 education system and the complexity of the tax code. Regulation came sixth, efficiency of the legal framework eighth.
Asked to name "the most problematic factors for doing business" in the U.S., respondents to the WEF's most recent Executive Opinion Survey put "inefficient government bureaucracy" at the top, followed by tax rates and tax regulations.
All this should not be interpreted as yet another prophecy of the imminent decline and fall of the U.S., however. There is some light in the gloom. According to the most recent United Nations projections, the share of the U.S. population that is over 65 will reach 25% only at the very end of this century. Japan has already passed that milestone; Germany will be next. By midcentury, both countries will have around a third of their population age 65 or older.
More imminently, a revolution in the extraction of shale gas and tight oil, via hydraulic fracking, is transforming the U.S. from energy dependence to independence. Not only could the U.S., at least for a time, re-emerge as the world's biggest oil producer; the lower electricity costs resulting from the fossil-fuel boom are already triggering a revival of U.S. manufacturing in the Southeast and elsewhere.
In a functioning federal system, the pace of institutional degeneration is not uniform. America's four "growth corridors"—the Great Plains, the Gulf Coast, the Intermountain West and the Southeast—are growing not just because they have natural resources but also because state governments in those regions are significantly more friendly to business. There are already heartening signs of a great regeneration in states like Texas and North Dakota.
"In America you have a right to be stupid—if you want to be." Secretary of State John Kerry made that remark off the cuff in February, speaking to a group of students in Berlin. It is not a right the founding fathers felt they needed explicitly to enshrine. But it has always been there, and America's leaders have frequently been willing to exercise it.
Yes, we Americans have the right to be stupid if we want to be. We can carry on pretending that our economic problems can be solved with the help of yet more fiscal stimulus or quantitative easing. Or we can face up to the institutional impediments to growth I have described here.
Not many economists talk about them, it's true. But that's because not many economists run businesses.
Adapted from Mr. Ferguson's new book, "The Great Degeneration: How Institutions Decay and Economies Die," to be published by Penguin Press on Thursday.
Saturday, June 8, 2013
Thursday, June 6, 2013
Why China Frets Over America's Retreat. By Daniel Blumenthal
Why China Frets Over America's Retreat. By Daniel Blumenthal
The Wall Street Journal, June 6, 2013, on page A17
Usually Chinese leaders decry Washington's foreign-policy aggression. That won't be an issue at this week's summit.
http://online.wsj.com/article/SB10001424127887324412604578515853119610968.html
When Chinese President Xi Jinping meets with President Obama in California at week's end, Mr. Xi will confront a new strategic reality: America in retreat. Chinese leaders normally complain that Washington is too aggressive. But what should really worry Beijing is the opposite—a bipartisan U.S. consensus for a foreign policy of retrenchment. As much as China aspires to global leadership, Beijing has neither the wherewithal nor the desire to take on the responsibilities that come with that role.
Since the Cold War ended in the early 1990s, Sino-American summitry has followed a pattern to which both countries have grown accustomed. Beijing complains of U.S. heavy-handedness. Washington complains that it shoulders all the burdens of global leadership and asks China to play a more responsible and prominent role in world affairs.
Neither country is serious while doing this minuet. At best Washington is conflicted about a greater leadership role for an authoritarian China. For its part, China has become accustomed to the benefits of a post-World War II American-led (and paid-for) global compact that includes freer markets, more peaceful international relations and more liberal governments.
The temptation to repeat this dance will be great this week. Presidents Xi and Obama will be meeting during a period of deep mutual suspicion. The downward spiral of distrust began in 2009 over escalating tensions about territory between China and its Southeast Asian neighbors, and it reached a new low when then-Secretary of State Hillary Clinton announced a "pivot" toward Asia in 2011.
The pivot strategy has two pillars. The first is a positive desire to deeply embed the U.S. in all of Asia's increasingly vibrant political and economic life. The second is a reaction to growing Chinese dominance in the region, and the resulting clamor—from America's regional allies and in the U.S.—for Washington to counterbalance predatory Chinese military power.
China chose to hear only the second part of the pivot strategy, reacting to it as Cold War-style containment with Asian characteristics. Relations between the two powers have been frosty since then.
Yet if Mr. Xi examines U.S. foreign policy more closely, he will see that Beijing is worried about the wrong things. The problem is not too much American power. It is too little.
Consider recent events in Washington: Mr. Obama announced the end of the war on terror without evidence that the conflict had ended and denied leaks suggesting the imposition of a no-fly zone in Syria. He ignored a new International Atomic Energy Agency report suggesting that Iran is making huge progress in developing nuclear weapons, and refused efforts to restore draconian cuts to the U.S. military budget.
In response—a few outliers notwithstanding—Congress, including Republicans, remained silent. This marked a significant shift. Once the tribune of American global leadership, much of the right now marches in foreign-policy lock step with a left that has little interest in the exercise of U.S. power. This left-right neo-isolationist alliance is a recipe for global chaos—an outcome more harmful to China than the big-footed America that China is used to complaining about.
Why? Because despite China's politically correct paeans to international institutions and multilateralism, Chinese leaders well know that international politics needs a prime actor willing to provide global public goods such as secure maritime trade, peace between great powers, nonproliferation, counterterrorism and leadership on international trade and investment.
If the U.S. abdicates its role, China is the only other nation in line for the post of prime power. Is China ready to assume primacy in the international community? The answer is no.
Granted, China is active on the world stage. Recently President Xi announced proposals for Arab-Israeli peace and a Syrian cease-fire. Once again, Beijing prodded North Korea to open up and reform its economy. But peace proposals, state visits and commercial diplomacy cannot maintain world order.
Taking the global leadership reins from the U.S. would require incurring real costs, taking big risks, using political capital and, if necessary, expending blood and treasure. If China wanted to lead the world, it would build a navy capable of protecting—rather than disrupting—sea lanes. It would contribute to the fight against terror and help to keep cyberspace an open commons for commercial transactions and the sharing of ideas. It is doing none of these things.
Think of it this way: Does China wish to anger anyone in the Middle East by taking sides in Syria or pressuring Iran? Manage the collapse of North Korea? Steward a new era of free trade? Push back al Qaeda?
Chinese leaders appear not to give much consideration to taking on these tasks, nor has Washington thought through what a world with no leader would look like. Does a global system of anti-democratic regional hegemons, spheres of influence, and exclusive trading blocs really appeal?
For all of these reasons, this could be a truly pivotal summit. As counterintuitive as it may seem, for the first time since the Soviet collapse China has an interest in America acting more, not less, assertively in foreign affairs.
Mr. Blumenthal is the director of Asian Studies at the American Enterprise Institute.
The Wall Street Journal, June 6, 2013, on page A17
Usually Chinese leaders decry Washington's foreign-policy aggression. That won't be an issue at this week's summit.
http://online.wsj.com/article/SB10001424127887324412604578515853119610968.html
When Chinese President Xi Jinping meets with President Obama in California at week's end, Mr. Xi will confront a new strategic reality: America in retreat. Chinese leaders normally complain that Washington is too aggressive. But what should really worry Beijing is the opposite—a bipartisan U.S. consensus for a foreign policy of retrenchment. As much as China aspires to global leadership, Beijing has neither the wherewithal nor the desire to take on the responsibilities that come with that role.
Since the Cold War ended in the early 1990s, Sino-American summitry has followed a pattern to which both countries have grown accustomed. Beijing complains of U.S. heavy-handedness. Washington complains that it shoulders all the burdens of global leadership and asks China to play a more responsible and prominent role in world affairs.
Neither country is serious while doing this minuet. At best Washington is conflicted about a greater leadership role for an authoritarian China. For its part, China has become accustomed to the benefits of a post-World War II American-led (and paid-for) global compact that includes freer markets, more peaceful international relations and more liberal governments.
The temptation to repeat this dance will be great this week. Presidents Xi and Obama will be meeting during a period of deep mutual suspicion. The downward spiral of distrust began in 2009 over escalating tensions about territory between China and its Southeast Asian neighbors, and it reached a new low when then-Secretary of State Hillary Clinton announced a "pivot" toward Asia in 2011.
The pivot strategy has two pillars. The first is a positive desire to deeply embed the U.S. in all of Asia's increasingly vibrant political and economic life. The second is a reaction to growing Chinese dominance in the region, and the resulting clamor—from America's regional allies and in the U.S.—for Washington to counterbalance predatory Chinese military power.
China chose to hear only the second part of the pivot strategy, reacting to it as Cold War-style containment with Asian characteristics. Relations between the two powers have been frosty since then.
Yet if Mr. Xi examines U.S. foreign policy more closely, he will see that Beijing is worried about the wrong things. The problem is not too much American power. It is too little.
Consider recent events in Washington: Mr. Obama announced the end of the war on terror without evidence that the conflict had ended and denied leaks suggesting the imposition of a no-fly zone in Syria. He ignored a new International Atomic Energy Agency report suggesting that Iran is making huge progress in developing nuclear weapons, and refused efforts to restore draconian cuts to the U.S. military budget.
In response—a few outliers notwithstanding—Congress, including Republicans, remained silent. This marked a significant shift. Once the tribune of American global leadership, much of the right now marches in foreign-policy lock step with a left that has little interest in the exercise of U.S. power. This left-right neo-isolationist alliance is a recipe for global chaos—an outcome more harmful to China than the big-footed America that China is used to complaining about.
Why? Because despite China's politically correct paeans to international institutions and multilateralism, Chinese leaders well know that international politics needs a prime actor willing to provide global public goods such as secure maritime trade, peace between great powers, nonproliferation, counterterrorism and leadership on international trade and investment.
If the U.S. abdicates its role, China is the only other nation in line for the post of prime power. Is China ready to assume primacy in the international community? The answer is no.
Granted, China is active on the world stage. Recently President Xi announced proposals for Arab-Israeli peace and a Syrian cease-fire. Once again, Beijing prodded North Korea to open up and reform its economy. But peace proposals, state visits and commercial diplomacy cannot maintain world order.
Taking the global leadership reins from the U.S. would require incurring real costs, taking big risks, using political capital and, if necessary, expending blood and treasure. If China wanted to lead the world, it would build a navy capable of protecting—rather than disrupting—sea lanes. It would contribute to the fight against terror and help to keep cyberspace an open commons for commercial transactions and the sharing of ideas. It is doing none of these things.
Think of it this way: Does China wish to anger anyone in the Middle East by taking sides in Syria or pressuring Iran? Manage the collapse of North Korea? Steward a new era of free trade? Push back al Qaeda?
Chinese leaders appear not to give much consideration to taking on these tasks, nor has Washington thought through what a world with no leader would look like. Does a global system of anti-democratic regional hegemons, spheres of influence, and exclusive trading blocs really appeal?
For all of these reasons, this could be a truly pivotal summit. As counterintuitive as it may seem, for the first time since the Soviet collapse China has an interest in America acting more, not less, assertively in foreign affairs.
Mr. Blumenthal is the director of Asian Studies at the American Enterprise Institute.
South Korea: National Security or National Pride Regarding Japan?, by Krista E. Wiegand
South Korea: National Security or National Pride Regarding Japan?, by Krista E. Wiegand
Asia Pacific Bulletin, No. 214
Washington, D.C.: East-West Center
May 22, 2013
http://www.eastwestcenter.org/publications/south-korea-national-security-or-national-pride-regarding-japan
Krista E. Wiegand is Associate Professor of Political Science at Georgia Southern University and a recent POSCO Visiting Fellow at the East-West Center. She explains in this bulletin that "The South Korean government will not be able to deal with the larger issue of security relations with Japan until disputed issues symbolized by Dokdo/Takeshima are sufficiently resolved—and the likelihood of this happening anytime soon is fairly low."
Excerpts:
Asia Pacific Bulletin, No. 214
Washington, D.C.: East-West Center
May 22, 2013
http://www.eastwestcenter.org/publications/south-korea-national-security-or-national-pride-regarding-japan
Krista E. Wiegand is Associate Professor of Political Science at Georgia Southern University and a recent POSCO Visiting Fellow at the East-West Center. She explains in this bulletin that "The South Korean government will not be able to deal with the larger issue of security relations with Japan until disputed issues symbolized by Dokdo/Takeshima are sufficiently resolved—and the likelihood of this happening anytime soon is fairly low."
Excerpts:
The first official state function of newly inaugurated President Park Geun-hye was a ceremony on March 1 commemorating Independence Movement Day—celebrating Korean resistance in 1919 to Japanese occupation—where she appealed: “It is incumbent on Japan to have a correct understanding of history and take on an attitude of responsibility in order to partner with us in playing a leading role in East Asia in the 21st century.” Her speech outlined a hard line stance regarding ROK-Japan relations. It also did not help that at the end of March, the Korean Foreign Ministry summoned a high ranking Japanese official in Seoul to strongly protest the inclusion of the islets as being called Takeshima in newly released Japanese school books. Japanese cabinet members then went to Yasakuni Shrine in April which further exasperated matters, resulting in South Korean Foreign Minister Yun Byung-se cancelling a proposed visit to Japan.
If Park wants to maintain high approval ratings and not lose credibility regarding her tough position towards Japan, she will have to take into account domestic public opinion on any future security plans with Japan, even under US pressure. Yet, taking this tough approach causes unconstructive tensions in the ROK-Japan-US security relationship, and at a time of recent unprecedented heightened tensions on the Korean Peninsula. Moreover, Korea’s role as an increasingly important actor in regional security indicates that Japan and South Korea will have to cooperate more in the future. They are both democracies, have shared values and interests, and each looks to the United States as the preferred security partner. Park will have to balance Korea’s security interests with domestic opposition to closer ties with Japan, an extremely difficult challenge under current circumstances.
Even if Korean officials are not as supportive of the GSOMIA as their counterparts in Japan and the United States, moving forward on security relations with Japan is critical. Yet, domestic opposition to issues related to Japan has effectively prevented such cooperation. The South Korean government will not be able to deal with the larger issue of security relations with Japan until disputed issues symbolized by Dokdo/ Takeshima are sufficiently resolved—and the likelihood of this happening anytime soon is fairly low. The United States has encouraged better bilateral relations between its two closest allies in East Asia, yet at the same time, the US government has been hesitant to take sides in a dispute that the United States itself inadvertently created as a result of its ambiguity in its role as mediator of the 1951 San Francisco Treaty. President Park and future Korean presidents will have a tough time successfully pursuing any plans of security engagement with Japan as long as the Dokdo/Takeshima dispute and related issues flare up. The United States is in a unique position to influence both Korea and Japan and it should continue to pressure both states to work toward reconciliation.
Friday, May 31, 2013
241 Medicines in Development for Leukemia, Lymphoma and Other Blood Cancers
241 Medicines in Development for Leukemia, Lymphoma and Other Blood Cancers
PhRMA, May 2013
www.innovation.org/index.cfm/FutureofInnovation/NewMedicinesinDevelopment/Leukemia_and_Lymphoma
Biopharmaceutical research companies are developing 241 medicines for blood cancers—leukemia, lymphoma and myeloma. This report lists medicines in human clinical trials or under review by the U.S. Food and Drug Administration (FDA).
The medicines in development include:
• 98 for lymphoma, including Hodgkin and non-Hodgkin lymphoma, which affect nearly 80,000 Americans each year.
• 97 for leukemia, including the four major types, which affect nearly 50,000 people in the United States each year.
• 52 for myeloma, a cancer of the plasma cells, which impacts more than 22,000 people each year in the United States.
• 24 medicines are targeting hematological malignancies, which affect bone marrow, blood and lymph nodes.
• 15 each for myeloproliferative neoplasms, such as myelofibrosis, polycythemia vera and essential thrombocythemia; and for myelodysplastic syndromes, which are diseases affecting the blood and bone marrow.
These medicines in development offer hope for greater survival for the thousands of Americans who are affected by these cancers of the blood.
Definitions for the cancers listed in this report and other terms can be found on page 27. Links to sponsor company web sites provide more information on the potential products. See full report: http://t.co/JSbXhBVG7t
PhRMA, May 2013
www.innovation.org/index.cfm/FutureofInnovation/NewMedicinesinDevelopment/Leukemia_and_Lymphoma
Biopharmaceutical research companies are developing 241 medicines for blood cancers—leukemia, lymphoma and myeloma. This report lists medicines in human clinical trials or under review by the U.S. Food and Drug Administration (FDA).
The medicines in development include:
• 98 for lymphoma, including Hodgkin and non-Hodgkin lymphoma, which affect nearly 80,000 Americans each year.
• 97 for leukemia, including the four major types, which affect nearly 50,000 people in the United States each year.
• 52 for myeloma, a cancer of the plasma cells, which impacts more than 22,000 people each year in the United States.
• 24 medicines are targeting hematological malignancies, which affect bone marrow, blood and lymph nodes.
• 15 each for myeloproliferative neoplasms, such as myelofibrosis, polycythemia vera and essential thrombocythemia; and for myelodysplastic syndromes, which are diseases affecting the blood and bone marrow.
These medicines in development offer hope for greater survival for the thousands of Americans who are affected by these cancers of the blood.
Definitions for the cancers listed in this report and other terms can be found on page 27. Links to sponsor company web sites provide more information on the potential products. See full report: http://t.co/JSbXhBVG7t
Thursday, May 30, 2013
CGFS: Asset encumbrance, financial reform and the demand for collateral assets
Asset encumbrance, financial reform and the demand for collateral assets
CGFS Publications No 49
May 2013
http://www.bis.org/publ/cgfs49.htm
Executive Summary
The use of collateral in financial transactions has risen in many jurisdictions in the aftermath of the financial crisis, and is likely to increase further. This is driven by both market forces and regulatory changes, and has triggered concerns about real or perceived collateral scarcity and excessive asset encumbrance. Taking a system-wide perspective, this report examines how greater collateral use and asset encumbrance may impact the functioning of the financial system and draws lessons for policymakers. The key findings are summarised below.
Increasing collateralised funding and asset encumbrance
No aggregate collateral shortages, but differences amongst jurisdictions
Implications for markets and financial stability
Implications for policy
CGFS Publications No 49
May 2013
http://www.bis.org/publ/cgfs49.htm
Executive Summary
The use of collateral in financial transactions has risen in many jurisdictions in the aftermath of the financial crisis, and is likely to increase further. This is driven by both market forces and regulatory changes, and has triggered concerns about real or perceived collateral scarcity and excessive asset encumbrance. Taking a system-wide perspective, this report examines how greater collateral use and asset encumbrance may impact the functioning of the financial system and draws lessons for policymakers. The key findings are summarised below.
Increasing collateralised funding and asset encumbrance
There is evidence of increasing bank reliance on collateralised market funding, particularly in Europe. A key driver of this development is perceptions of higher counterparty credit risk amongst investors, who demand more collateral or charge higher risk premia on unsecured debt.
However, the share of collateralised funding differs significantly among banks and between jurisdictions. Indeed, different business models, market structures and regulatory frameworks will tend to generate – and support – structurally different levels of collateralised funding in bank balance sheets.
Greater reliance on collateralised funding raises the share of bank assets that are encumbered. Asset encumbrance is also rising on account of initial margin requirements of central and bilateral counterparties to cover derivatives exposures and other aspects of regulatory reform.
No aggregate collateral shortages, but differences amongst jurisdictions
The demand for high-quality assets (HQA) that can be used as collateral will increase due to a number of key regulatory reforms. Examples are stricter standards for initial margin requirements on over-the-counter (OTC) derivatives transactions, both for central and for bilateral clearing arrangements, and the introduction of the liquidity coverage ratio under Basel III. This comes on top of greater demand for collateral assets in secured bank funding.
Current estimates suggest that the combined impact of liquidity regulation and OTC derivatives reforms could generate additional collateral demand to the tune of $4 trillion. At the same time, the supply of collateral assets is known to have risen significantly since end-2007. Outstanding amounts of AAA- and AArated government securities alone – based on the market capitalisation of widely used benchmark indices – increased by $10.8 trillion between 2007 and 2012. Other measures suggest even greater increases in supply.
Hence, concerns about an absolute shortage of HQA appear unjustified. Yet as the situation varies markedly across jurisdictions, temporary HQA shortages may arise in some countries, for example when the level of government bonds outstanding is low or when government bonds are perceived risky by market participants.
Implications for markets and financial stability
Private sector adjustments can mitigate shortages of HQA. Such adjustments include broader eligibility criteria for collateral assets in private transactions, more efficient entity-level collateral management and increased collateral reuse and collateral transformation.
Yet while lessening any collateral shortage, such endogenous responses will come at the cost of greater interconnectedness in the financial system, for example in the form of more securities lending or collateral transformation services. They may also increase concentration, if these responses rely on the services of only a small number of intermediaries, and will add to financial system opacity, including via shadow banking activities, and increase operational, funding and rollover risks.
Increased collateralisation of bank balance sheets mitigates counterparty credit risk, but adds to the procyclicality of the financial system. The channels through which this occurs, in times of financial stress, are the exclusion of certain assets from the pool of eligible collateral, higher haircuts on collateral assets, increased margin requirements on centrally cleared and non-centrally cleared derivatives trades and marking-to-market of bank assets in collateral pools.
Greater encumbrance of bank balance sheets can adversely affect the residual claims of unsecured creditors during bank resolution, increase risks to deposit insurance schemes and reduce the effectiveness of policies aimed at bail-in. Given limited disclosures on encumbered assets, the ability of markets to accurately price unsecured debt can also be impaired.
Implications for policy
Market discipline can be enhanced by requiring banks to provide regular, standardised public disclosures on asset encumbrance. Transparency about the extent to which bank assets are encumbered or are available for encumbrance will allow unsecured creditors to better assess the risks they face. Such disclosures would include information on unencumbered assets relative to unsecured liabilities, on overcollateralisation levels, and on received collateral that can be rehypothecated. Development of such standards would benefit from outreach to market participants and could involve the reporting of lagged, average values to limit adverse dynamics in crisis periods. Supervisors, in turn, should receive more detailed and granular data, as required, including the amounts and types of unencumbered assets.
Including asset encumbrance in the pricing of deposit guarantee schemes deserves consideration in jurisdictions where encumbrance is of concern. Since depositors will not themselves factor in the risks posed by increased asset encumbrance – as their deposits are guaranteed – risk-sensitive deposit guarantee premia could serve to discipline banks. This would internalise the effect of asset encumbrance on residual risks for such schemes, as well as for the government as the ultimate safety net. Further analysis is needed to make this operational, taking into account differences in business models.
To internalise the risks of rising asset encumbrance, prudential limits can serve as a backstop to other policy measures, as practised in some jurisdictions. In cases where encumbrance could become a material concern, banks should be asked to perform regular stress tests that evaluate encumbrance levels under adverse market conditions.
Central banks and prudential authorities need to closely monitor and oversee market responses to increased collateral demand and their effects on interconnectedness. This provides support for work on best practice standards in securities financing markets and for shadow banking activities more generally, as well as for supervisory reviews of financial institutions’ risk and collateral management arrangements.
Concerns over procyclical demand for collateral assets lend support to efforts targeting strict standards for collateral valuation practices and through-the-cycle haircuts.
Tuesday, May 28, 2013
Competition Policy for Modern Banks. By Lev Ratnovski
Competition Policy for Modern Banks. By Lev Ratnovski
IMF Working Paper No. 13/126
May 23, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40568.0
Summary: Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks.
IMF Working Paper No. 13/126
May 23, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40568.0
Summary: Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks.
Saturday, May 25, 2013
Reading Hayek in Beijing. Bret Stephens on Yang Jisheng
Reading Hayek in Beijing. By Bret Stephens
A chronicler of Mao's depredations finds much to worry about in modern China.The Wall Street Journal, May 25, 2013, on page A11
http://online.wsj.com/article/SB10001424127887324659404578501492191072734.html
On Yang Jisheng
In the spring of 1959, Yang Jisheng, then an 18-year-old scholarship student at a boarding school in China's Hubei Province, got an unexpected visit from a childhood friend. "Your father is starving to death!" the friend told him. "Hurry back, and take some rice if you can."
Granted leave from his school, Mr. Yang rushed to his family farm. "The elm tree in front of our house had been reduced to a barkless trunk," he recalled, "and even its roots had been dug up." Entering his home, he found his father "half-reclined on his bed, his eyes sunken and lifeless, his face gaunt, the skin creased and flaccid . . . I was shocked with the realization that the term skin and bones referred to something so horrible and cruel."
Mr. Yang's father would die within three days. Yet it would take years before Mr. Yang learned that what happened to his father was not an isolated incident. He was one of the 36 million Chinese who succumbed to famine between 1958 and 1962.
It would take years more for him to realize that the source of all the suffering was not nature: There were no major droughts or floods in China in the famine years. Rather, the cause was man, and one man in particular: Mao Zedong, the Great Helmsman, whose visage still stares down on Beijing's Tiananmen Square from atop the gates of the Forbidden City.
Mr. Yang went on to make his career, first as a journalist and senior editor with the Xinhua News Agency, then as a historian whose unflinching scholarship has brought him into increasing conflict with the Communist Party—of which he nonetheless remains a member. Now 72 and a resident of Beijing, he's in New York this month to receive the Manhattan Institute's Hayek Prize for "Tombstone," his painstakingly researched, definitive history of the famine. On a visit to the Journal's headquarters, his affinity for the prize's namesake becomes clear.
"This book had a huge impact on me," he says, holding up his dog-eared Chinese translation of Friedrich Hayek's "The Road to Serfdom." Hayek's book, he explains, was originally translated into Chinese in 1962 as "an 'internal reference' for top leaders," meaning it was forbidden fruit to everyone else. Only in 1997 was a redacted translation made publicly available, complete with an editor's preface denouncing Hayek as "not in line with the facts," and "conceptually mixed up."
Mr. Yang quickly saw that in Hayek's warnings about the dangers of economic centralization lay both the ultimate explanation for the tragedies of his youth—and the predicaments of China's present. "In a country where the sole employer is the state," Hayek had observed, "opposition means death by slow starvation."
So it was in 1958 as Mao initiated his Great Leap Forward, demanding huge increases in grain and steel production. Peasants were forced to work intolerable hours to meet impossible grain quotas, often employing disastrous agricultural methods inspired by the quack Soviet agronomist Trofim Lysenko. The grain that was produced was shipped to the cities, and even exported abroad, with no allowances made to feed the peasants adequately. Starving peasants were prevented from fleeing their districts to find food. Cannibalism, including parents eating their own children, became commonplace.
"Mao's powers expanded from the people's minds to their stomachs," Mr. Yang says. "Whatever the Chinese people's brains were thinking and what their stomachs were receiving were all under the control of Mao. . . . His powers extended to every inch of the field, and every factory, every workroom of a factory, every family in China."
All the while, sympathetic Western journalists—America's Edgar Snow and Britain's Felix Greene in particular—were invited on carefully orchestrated tours so they could "refute" rumors of mass starvation. To this day, few people realize that Mao's forced famine was the single greatest atrocity of the 20th century, exceeding by orders of magnitude the Rwandan genocide, the Cambodian Killing Fields and the Holocaust.
The power of Mr. Yang's book lies in its hauntingly precise descriptions of the cruelty of party officials, the suffering of the peasants, the pervasive dread of being called "a right deviationist" for telling the truth that quotas weren't being met and that millions were being starved to death, and the toadyism of Mao lieutenants.
Yet the book is more than a history of a uniquely cruel regime at a receding moment in time. It is also a warning of what lies at the end of the road for nations that substitute individualism with any form of collectivism, no matter what the motives. Which brings Mr. Yang to the present day.
"China's economy is not what [Party leaders] claim as the 'socialist-market economy,' " he says. "It's a 'power-market' economy."
What does that mean?
"It means the market is controlled by the power. . . . For example, the land: Any permit to enter any sector, to do any business has to be approved by the government. Even local government, down to the county level. So every county operates like an enterprise, a company. The party secretary of the county is the CEO, the president."
Put another way, the conventional notion that the modern Chinese system combines political authoritarianism with economic liberalism is mistaken: A more accurate description of the recipe is dictatorship and cronyism, with the results showing up in rampant corruption, environmental degradation and wide inequalities between the politically well-connected and everyone else. "There are two major forms of hatred" in China today, Mr. Yang explains. "Hatred toward the rich; hatred toward the powerful, the officials." As often as not they are one and the same.
Yet isn't China a vastly freer place than it was in the days of Mr. Yang's youth? He allows that the party's top priority in the post-Mao era has been to improve the lot of the peasantry, "to deal with how to fill the stomach."
He also acknowledges that there's more intellectual freedom. "I would have been executed if I had this book published 40 years ago," he notes. "I would have been imprisoned if this book was out 30 years ago. Now the result is that I'm not allowed to get any articles published in the mainstream media." The Chinese-language version of "Tombstone" was published in Hong Kong but is banned on the mainland.
There is, of course, a rational reason why the regime tolerates Mr. Yang. To survive, the regime needs to censor vast amounts of information—what Mr. Yang calls "the ruling technique" of Chinese leaders across the centuries. Yet censorship isn't enough: It also needs a certain number of people who understand the full truth about the Maoist system so that the party will never repeat its mistakes, even as it keeps the cult of Mao alive in order to preserve its political legitimacy. That's especially true today as China is being swept by a wave of Maoist nostalgia among people who, Mr. Yang says, "abstract Mao as this symbol of social justice," and then use that abstraction to criticize the current regime.
"Ten million workers get laid off in the state-owned enterprise reforms," he explains. "So many people are dissatisfied with the reforms. Then they become nostalgic and think the Mao era was much better. Because they never experienced the Mao era!" One of the leaders of that revival, incidentally, was Bo Xilai, the powerful former Chongqing party chief, brought down in a murder scandal last year.
But there's a more sinister reason why Mr. Yang is tolerated. Put simply, the regime needs some people to have a degree of intellectual freedom, in order to more perfectly maintain its dictatorship over everyone else.
"Once I gave a lecture to leaders at a government bureau," Mr. Yang recalls. "I told them it's a dangerous job, you guys, being officials, because you have too much power. I said you guys have to be careful because those who want approval from you to get certain land and projects, who bribe you, these are like bullets, ammunition, coated in sugar, to fire at you. So today you may be a top official, tomorrow you may be a prisoner."
How did the officials react to that one?
"They said, 'Professor Yang, what you said, we should pay attention.' "
So they should. As Hayek wrote in his famous essay on "The Use of Knowledge in a Society," the fundamental problem of any planned system is that "knowledge of circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess."
The Great Leap Forward was an extreme example of what happens when a coercive state, operating on the conceit of perfect knowledge, attempts to achieve some end. Even today the regime seems to think it's possible to know everything—one reason they devote so many resources to monitoring domestic websites and hacking into the servers of Western companies. But the problem of incomplete knowledge can't be solved in an authoritarian system that refuses to cede power to the separate people who possess that knowledge.
"For the last 20 years, the Chinese government has been saying they have to change the growth mode of the economy," Mr. Yang notes. "So they've been saying, rather than just merely expanding the economy they should do internal changes, meaning more value-added services and high tech. They've been shouting such slogans for 20 years, and not many results. Why haven't we seen many changes? Because it's the problem that lies in the very system, because it's a power-market economy. . . . If the politics isn't changed, the growth mode cannot be changed."
That suggests China will never become a mature power until it becomes a democratic one. As to whether that will happen anytime soon, Mr. Yang seems doubtful: The one opinion widely shared by rulers and ruled alike in China is that without the Communist Party's leadership, "China will be thrown into chaos."
Still, Mr. Yang hardly seems to have given up hope that he can play a role in raising his country's prospects. In particular, he's keen to reclaim two ideas at risk of being lost in today's China.
The first is the meaning of rights. A saying attributed to the philosopher Lao Tzu, he says, has it that a ruler should fill the people's stomachs and empty their heads. The gambit of China's current rulers is that they can stay in power forever by applying that maxim. Mr. Yang hopes they're wrong.
"People have more needs than just eating!" he insists. "In China, human rights means the right to survive, and I argue with these people. This is not human rights, it's animal rights. People have all sorts of needs. Spiritual needs, the need to be free, the freedoms."
The second is the obligation of memory. China today is a country galloping into a century many people believe it will define, one way or the other. Yet the past, Mr. Yang insists, also has its claims.
"If a people cannot face their history, these people won't have a future. That was one of the purposes for me to write this book. I wrote a lot of hard facts, tragedies. I wanted people to learn a lesson, so we can be far away from the darkness, far away from tragedies, and won't repeat them."
Hayek would have understood both points well.
Mr. Stephens writes "Global View," the Journal's foreign-affairs column.
A chronicler of Mao's depredations finds much to worry about in modern China.The Wall Street Journal, May 25, 2013, on page A11
http://online.wsj.com/article/SB10001424127887324659404578501492191072734.html
On Yang Jisheng
In the spring of 1959, Yang Jisheng, then an 18-year-old scholarship student at a boarding school in China's Hubei Province, got an unexpected visit from a childhood friend. "Your father is starving to death!" the friend told him. "Hurry back, and take some rice if you can."
Granted leave from his school, Mr. Yang rushed to his family farm. "The elm tree in front of our house had been reduced to a barkless trunk," he recalled, "and even its roots had been dug up." Entering his home, he found his father "half-reclined on his bed, his eyes sunken and lifeless, his face gaunt, the skin creased and flaccid . . . I was shocked with the realization that the term skin and bones referred to something so horrible and cruel."
Mr. Yang's father would die within three days. Yet it would take years before Mr. Yang learned that what happened to his father was not an isolated incident. He was one of the 36 million Chinese who succumbed to famine between 1958 and 1962.
It would take years more for him to realize that the source of all the suffering was not nature: There were no major droughts or floods in China in the famine years. Rather, the cause was man, and one man in particular: Mao Zedong, the Great Helmsman, whose visage still stares down on Beijing's Tiananmen Square from atop the gates of the Forbidden City.
Mr. Yang went on to make his career, first as a journalist and senior editor with the Xinhua News Agency, then as a historian whose unflinching scholarship has brought him into increasing conflict with the Communist Party—of which he nonetheless remains a member. Now 72 and a resident of Beijing, he's in New York this month to receive the Manhattan Institute's Hayek Prize for "Tombstone," his painstakingly researched, definitive history of the famine. On a visit to the Journal's headquarters, his affinity for the prize's namesake becomes clear.
"This book had a huge impact on me," he says, holding up his dog-eared Chinese translation of Friedrich Hayek's "The Road to Serfdom." Hayek's book, he explains, was originally translated into Chinese in 1962 as "an 'internal reference' for top leaders," meaning it was forbidden fruit to everyone else. Only in 1997 was a redacted translation made publicly available, complete with an editor's preface denouncing Hayek as "not in line with the facts," and "conceptually mixed up."
Mr. Yang quickly saw that in Hayek's warnings about the dangers of economic centralization lay both the ultimate explanation for the tragedies of his youth—and the predicaments of China's present. "In a country where the sole employer is the state," Hayek had observed, "opposition means death by slow starvation."
So it was in 1958 as Mao initiated his Great Leap Forward, demanding huge increases in grain and steel production. Peasants were forced to work intolerable hours to meet impossible grain quotas, often employing disastrous agricultural methods inspired by the quack Soviet agronomist Trofim Lysenko. The grain that was produced was shipped to the cities, and even exported abroad, with no allowances made to feed the peasants adequately. Starving peasants were prevented from fleeing their districts to find food. Cannibalism, including parents eating their own children, became commonplace.
"Mao's powers expanded from the people's minds to their stomachs," Mr. Yang says. "Whatever the Chinese people's brains were thinking and what their stomachs were receiving were all under the control of Mao. . . . His powers extended to every inch of the field, and every factory, every workroom of a factory, every family in China."
All the while, sympathetic Western journalists—America's Edgar Snow and Britain's Felix Greene in particular—were invited on carefully orchestrated tours so they could "refute" rumors of mass starvation. To this day, few people realize that Mao's forced famine was the single greatest atrocity of the 20th century, exceeding by orders of magnitude the Rwandan genocide, the Cambodian Killing Fields and the Holocaust.
The power of Mr. Yang's book lies in its hauntingly precise descriptions of the cruelty of party officials, the suffering of the peasants, the pervasive dread of being called "a right deviationist" for telling the truth that quotas weren't being met and that millions were being starved to death, and the toadyism of Mao lieutenants.
Yet the book is more than a history of a uniquely cruel regime at a receding moment in time. It is also a warning of what lies at the end of the road for nations that substitute individualism with any form of collectivism, no matter what the motives. Which brings Mr. Yang to the present day.
"China's economy is not what [Party leaders] claim as the 'socialist-market economy,' " he says. "It's a 'power-market' economy."
What does that mean?
"It means the market is controlled by the power. . . . For example, the land: Any permit to enter any sector, to do any business has to be approved by the government. Even local government, down to the county level. So every county operates like an enterprise, a company. The party secretary of the county is the CEO, the president."
Put another way, the conventional notion that the modern Chinese system combines political authoritarianism with economic liberalism is mistaken: A more accurate description of the recipe is dictatorship and cronyism, with the results showing up in rampant corruption, environmental degradation and wide inequalities between the politically well-connected and everyone else. "There are two major forms of hatred" in China today, Mr. Yang explains. "Hatred toward the rich; hatred toward the powerful, the officials." As often as not they are one and the same.
Yet isn't China a vastly freer place than it was in the days of Mr. Yang's youth? He allows that the party's top priority in the post-Mao era has been to improve the lot of the peasantry, "to deal with how to fill the stomach."
He also acknowledges that there's more intellectual freedom. "I would have been executed if I had this book published 40 years ago," he notes. "I would have been imprisoned if this book was out 30 years ago. Now the result is that I'm not allowed to get any articles published in the mainstream media." The Chinese-language version of "Tombstone" was published in Hong Kong but is banned on the mainland.
There is, of course, a rational reason why the regime tolerates Mr. Yang. To survive, the regime needs to censor vast amounts of information—what Mr. Yang calls "the ruling technique" of Chinese leaders across the centuries. Yet censorship isn't enough: It also needs a certain number of people who understand the full truth about the Maoist system so that the party will never repeat its mistakes, even as it keeps the cult of Mao alive in order to preserve its political legitimacy. That's especially true today as China is being swept by a wave of Maoist nostalgia among people who, Mr. Yang says, "abstract Mao as this symbol of social justice," and then use that abstraction to criticize the current regime.
"Ten million workers get laid off in the state-owned enterprise reforms," he explains. "So many people are dissatisfied with the reforms. Then they become nostalgic and think the Mao era was much better. Because they never experienced the Mao era!" One of the leaders of that revival, incidentally, was Bo Xilai, the powerful former Chongqing party chief, brought down in a murder scandal last year.
But there's a more sinister reason why Mr. Yang is tolerated. Put simply, the regime needs some people to have a degree of intellectual freedom, in order to more perfectly maintain its dictatorship over everyone else.
"Once I gave a lecture to leaders at a government bureau," Mr. Yang recalls. "I told them it's a dangerous job, you guys, being officials, because you have too much power. I said you guys have to be careful because those who want approval from you to get certain land and projects, who bribe you, these are like bullets, ammunition, coated in sugar, to fire at you. So today you may be a top official, tomorrow you may be a prisoner."
How did the officials react to that one?
"They said, 'Professor Yang, what you said, we should pay attention.' "
So they should. As Hayek wrote in his famous essay on "The Use of Knowledge in a Society," the fundamental problem of any planned system is that "knowledge of circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess."
The Great Leap Forward was an extreme example of what happens when a coercive state, operating on the conceit of perfect knowledge, attempts to achieve some end. Even today the regime seems to think it's possible to know everything—one reason they devote so many resources to monitoring domestic websites and hacking into the servers of Western companies. But the problem of incomplete knowledge can't be solved in an authoritarian system that refuses to cede power to the separate people who possess that knowledge.
"For the last 20 years, the Chinese government has been saying they have to change the growth mode of the economy," Mr. Yang notes. "So they've been saying, rather than just merely expanding the economy they should do internal changes, meaning more value-added services and high tech. They've been shouting such slogans for 20 years, and not many results. Why haven't we seen many changes? Because it's the problem that lies in the very system, because it's a power-market economy. . . . If the politics isn't changed, the growth mode cannot be changed."
That suggests China will never become a mature power until it becomes a democratic one. As to whether that will happen anytime soon, Mr. Yang seems doubtful: The one opinion widely shared by rulers and ruled alike in China is that without the Communist Party's leadership, "China will be thrown into chaos."
Still, Mr. Yang hardly seems to have given up hope that he can play a role in raising his country's prospects. In particular, he's keen to reclaim two ideas at risk of being lost in today's China.
The first is the meaning of rights. A saying attributed to the philosopher Lao Tzu, he says, has it that a ruler should fill the people's stomachs and empty their heads. The gambit of China's current rulers is that they can stay in power forever by applying that maxim. Mr. Yang hopes they're wrong.
"People have more needs than just eating!" he insists. "In China, human rights means the right to survive, and I argue with these people. This is not human rights, it's animal rights. People have all sorts of needs. Spiritual needs, the need to be free, the freedoms."
The second is the obligation of memory. China today is a country galloping into a century many people believe it will define, one way or the other. Yet the past, Mr. Yang insists, also has its claims.
"If a people cannot face their history, these people won't have a future. That was one of the purposes for me to write this book. I wrote a lot of hard facts, tragedies. I wanted people to learn a lesson, so we can be far away from the darkness, far away from tragedies, and won't repeat them."
Hayek would have understood both points well.
Mr. Stephens writes "Global View," the Journal's foreign-affairs column.
Friday, May 17, 2013
"Near-Coincident" Indicators of Systemic Stress. By Ivailo Arsov, Elie Canetti, Laura Kodres, and Srobona Mitra
"Near-Coincident" Indicators of Systemic Stress. By Ivailo Arsov, Elie Canetti, Laura Kodres, and Srobona Mitra
IMF Working Paper No. 13/115
May 17, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40551.0
Summary: The G-20 Data Gaps Initiative has called for the IMF to develop standard measures of tail risk, which we identify in this paper with systemic risk. To understand the conditions under which tail risk is present, it is first necessary to develop a measure of what constitutes a systemic stress, or tail, event. We develop such a measure and uses it to assess the performance of eleven near-term systemic risk indicators as ‘early’ warning of distress among top financial institutions in the United States and the euro area. Two indicators perform particularly well in both regions, and a couple of other simple indicators do well across a number of criteria. We also find that the sizes of institutions do not necessarily correspond with their contribution to spillover risk. Some practical guidance for policies is provided.
IMF Working Paper No. 13/115
May 17, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40551.0
Summary: The G-20 Data Gaps Initiative has called for the IMF to develop standard measures of tail risk, which we identify in this paper with systemic risk. To understand the conditions under which tail risk is present, it is first necessary to develop a measure of what constitutes a systemic stress, or tail, event. We develop such a measure and uses it to assess the performance of eleven near-term systemic risk indicators as ‘early’ warning of distress among top financial institutions in the United States and the euro area. Two indicators perform particularly well in both regions, and a couple of other simple indicators do well across a number of criteria. We also find that the sizes of institutions do not necessarily correspond with their contribution to spillover risk. Some practical guidance for policies is provided.
Thursday, May 16, 2013
Unconventional Monetary Policies - Recent Experiences and Prospects (+ Background Paper)
Unconventional Monetary Policies - Recent Experiences and Prospects
IMF Policy Paper
http://www.imf.org/external/pp/longres.aspx?id=4764
Summary:This paper addresses three questions about unconventional monetary policies. First, what policies were tried, and with what objectives? Second, were policies effective? And third, what role might these policies continue to play in the future?
Unconventional Monetary Policies - Recent Experiences and Prospects - Background Paper
IMF Policy Paper
http://www.imf.org/external/pp/longres.aspx?id=4765
Summary:This paper provides background information to the main Board paper, “The Role and Limits of Unconventional Monetary Policy.” This paper is divided in five distinct sections, each focused on a different topic covered in the main paper, though most relate to bond purchase programs. As a result, this paper centers on the experience of the United States Federal Reserve (Fed), the Bank of England (BOE) and the Bank of Japan (BOJ), mostly leaving the European Central Bank (ECB) aside given its focus on restoring the functioning of financial markets and intermediation. Section A explores whether bond purchase programs were effective at decreasing bond yields and, if so, through which channels. Section B goes one step further in evaluating whether bond purchase programs had—or can be expected to have—significant effects on real growth and inflation. Section C studies the spillover effects of bond purchases on both advanced and emerging market economies, using very similar methods as introduced in the first section. Section D breaks from the immediate focus on bond purchases to discuss how inflation might decrease the debt burden in advanced economies, in light of possible pressures that could fall (or be perceived to fall) on central banks. Finally, Section E discusses the possible risks of exiting given the very large central bank balance sheets.
IMF Policy Paper
http://www.imf.org/external/pp/longres.aspx?id=4764
Summary:This paper addresses three questions about unconventional monetary policies. First, what policies were tried, and with what objectives? Second, were policies effective? And third, what role might these policies continue to play in the future?
Unconventional Monetary Policies - Recent Experiences and Prospects - Background Paper
IMF Policy Paper
http://www.imf.org/external/pp/longres.aspx?id=4765
Summary:This paper provides background information to the main Board paper, “The Role and Limits of Unconventional Monetary Policy.” This paper is divided in five distinct sections, each focused on a different topic covered in the main paper, though most relate to bond purchase programs. As a result, this paper centers on the experience of the United States Federal Reserve (Fed), the Bank of England (BOE) and the Bank of Japan (BOJ), mostly leaving the European Central Bank (ECB) aside given its focus on restoring the functioning of financial markets and intermediation. Section A explores whether bond purchase programs were effective at decreasing bond yields and, if so, through which channels. Section B goes one step further in evaluating whether bond purchase programs had—or can be expected to have—significant effects on real growth and inflation. Section C studies the spillover effects of bond purchases on both advanced and emerging market economies, using very similar methods as introduced in the first section. Section D breaks from the immediate focus on bond purchases to discuss how inflation might decrease the debt burden in advanced economies, in light of possible pressures that could fall (or be perceived to fall) on central banks. Finally, Section E discusses the possible risks of exiting given the very large central bank balance sheets.
Tuesday, May 14, 2013
Creating a Safer Financial System: Will the Volcker, Vickers, and Liikanen Structural Measures Help?
Creating a Safer Financial System: Will the Volcker, Vickers, and Liikanen Structural Measures Help? By Jose Vinals, Ceyla Pazarbasioglu, Jay Surti, Aditya Narain, Michaela Erbenova, and Julian Chow
IMF Staff Discussion Notes No. 13/4
May 14, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40526.0
Summary: The U.S., the U.K., and more recently, the E.U., have proposed policy measures directly targeting complexity and business structures of banks. Unlike other, price-based reforms (e.g., Basel 3 and G-SIFI surcharges), these proposals have been developed unilaterally with material differences in scope, design and implementation schedules. This may exacerbate cross-border regulatory arbitrage and put a further burden on consolidated supervision and cross-border resolution. This paper provides an analysis of the potential implications of implementing different structural policy measures. It proposes a pragmatic and coordinated approach to development of these policies to reduce risk of regulatory arbitrage and minimize unintended consequences. In doing so, it also aims to identify a set of common policy measures that countries could adopt to re-scope bank business models and corporate structures.
Executive Summary
Structural constraints on banks proposed by a number of countries aim to address the too-important-to- fail problem by reducing the risk that these institutions will fail and by simplifying their resolution if they do fail.
Structural measures can contribute to financial stability in combination with enhanced, post-crisis price-based regulations, supervision, and cross-border bank resolution frameworks. Activity restrictions, when appropriately designed and judiciously implemented, can work in tandem with strengthened capital requirements to limit bank management’s capacity for excessive risk taking. Corporate structures aligned to business activities and limits on intra-group exposures and on their pricing can shield systemically important financial services from idiosyncratic shocks impacting other activities. The nations proposing structural banking reform are global financial centers and systemically important economies. By enhancing financial stability in these countries, such policies can have positive spillovers on the global economy and financial system.
Nevertheless, our analysis suggests that these policies will also have potentially significant global costs given that they will be imposed on internationally active and systemic financial institutions. Our assessment points to the need for a global cost-benefit exercise encompassing extra-territorial implications of structural measures. This is necessary to determine whether the benefits of structural measures match or exceed costs at the global level; it would be difficult to justify them otherwise.
Subjecting a global institution to different structural measures in different jurisdictions could exert further pressure on consolidated supervision and cross-border resolution. Our view is that, with firm political support, a “targeted” approach—with structural measures tailored to the specific risk profiles of individual banks at a global group level—would promote global financial stability more effectively than an across-the-board approach. However, absent sufficient confidence in the supervisory capacity to design and forcefully implement the targeted approach, across-the-board measures would be appropriate provided their global benefits exceed their costs.
IMF Staff Discussion Notes No. 13/4
May 14, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40526.0
Summary: The U.S., the U.K., and more recently, the E.U., have proposed policy measures directly targeting complexity and business structures of banks. Unlike other, price-based reforms (e.g., Basel 3 and G-SIFI surcharges), these proposals have been developed unilaterally with material differences in scope, design and implementation schedules. This may exacerbate cross-border regulatory arbitrage and put a further burden on consolidated supervision and cross-border resolution. This paper provides an analysis of the potential implications of implementing different structural policy measures. It proposes a pragmatic and coordinated approach to development of these policies to reduce risk of regulatory arbitrage and minimize unintended consequences. In doing so, it also aims to identify a set of common policy measures that countries could adopt to re-scope bank business models and corporate structures.
Executive Summary
Structural constraints on banks proposed by a number of countries aim to address the too-important-to- fail problem by reducing the risk that these institutions will fail and by simplifying their resolution if they do fail.
Structural measures can contribute to financial stability in combination with enhanced, post-crisis price-based regulations, supervision, and cross-border bank resolution frameworks. Activity restrictions, when appropriately designed and judiciously implemented, can work in tandem with strengthened capital requirements to limit bank management’s capacity for excessive risk taking. Corporate structures aligned to business activities and limits on intra-group exposures and on their pricing can shield systemically important financial services from idiosyncratic shocks impacting other activities. The nations proposing structural banking reform are global financial centers and systemically important economies. By enhancing financial stability in these countries, such policies can have positive spillovers on the global economy and financial system.
Nevertheless, our analysis suggests that these policies will also have potentially significant global costs given that they will be imposed on internationally active and systemic financial institutions. Our assessment points to the need for a global cost-benefit exercise encompassing extra-territorial implications of structural measures. This is necessary to determine whether the benefits of structural measures match or exceed costs at the global level; it would be difficult to justify them otherwise.
Subjecting a global institution to different structural measures in different jurisdictions could exert further pressure on consolidated supervision and cross-border resolution. Our view is that, with firm political support, a “targeted” approach—with structural measures tailored to the specific risk profiles of individual banks at a global group level—would promote global financial stability more effectively than an across-the-board approach. However, absent sufficient confidence in the supervisory capacity to design and forcefully implement the targeted approach, across-the-board measures would be appropriate provided their global benefits exceed their costs.
Wednesday, May 8, 2013
Can a Growing Services Sector Renew Asia's Economic Growth?
Can a Growing Services Sector Renew Asia's Economic Growth? By Marcus Noland, Donghyun Park, and Gemma B. Estrada
AsiaPacific Issues, No. 109
Honolulu: East-West Center, April 2013
Pages: 8
http://www.eastwestcenter.org/publications/can-growing-services-sector-renew-asias-economic-growth
To continue Asia's economic growth the focus for expansion and improvement must move from export manufacturing to the services sector--primarily to cross-border trade in such modern services as finance, information and communication, and professional business services. As the Asian services-sector economies have historically been dominated by personal services rather than by more information-intensive services, serious concerns exist about their ability to rapidly and successfully grow these modern services. While Asia does have some well-known services-sector success stories--such as in India and the Philippines--most Asian services economies have a history of relatively slow developmental change. Removing internal and external policy and structural constraints will be key to productivity growth in modern cross-border services trade. Improving educational opportunities and strengthening infrastructure and capital and labor markets will all be needed complements to regulatory reform if Asia is to grow new and innovative service providers.
AsiaPacific Issues, No. 109
Honolulu: East-West Center, April 2013
Pages: 8
http://www.eastwestcenter.org/publications/can-growing-services-sector-renew-asias-economic-growth
To continue Asia's economic growth the focus for expansion and improvement must move from export manufacturing to the services sector--primarily to cross-border trade in such modern services as finance, information and communication, and professional business services. As the Asian services-sector economies have historically been dominated by personal services rather than by more information-intensive services, serious concerns exist about their ability to rapidly and successfully grow these modern services. While Asia does have some well-known services-sector success stories--such as in India and the Philippines--most Asian services economies have a history of relatively slow developmental change. Removing internal and external policy and structural constraints will be key to productivity growth in modern cross-border services trade. Improving educational opportunities and strengthening infrastructure and capital and labor markets will all be needed complements to regulatory reform if Asia is to grow new and innovative service providers.
Thursday, May 2, 2013
U.S. SEC Proposes Rules For Cross-Border Swap Trades
U.S. SEC Proposes Rules For Cross-Border Swap Trades. By Sarah N. Lynch
Daily News (White Plains, NY)
May 02, 2013
http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsid=61783
Excerpts:
The top U.S. securities regulator unveiled a proposal on Wednesday [May 1] that spells out how its rules for swaps will apply to foreign banks, saying it hoped its proposal can resolve a brewing global conflict over how to regulate the $640 trillion market.
[...]
"This is particularly important because the global nature of this market means that participants may be subject to requirements in multiple countries," SEC Chair Mary Jo White said.
The SEC and another regulator, the Commodity Futures Trading Commission, won broad new powers in the 2010 Dodd-Frank Wall Street reform law to police the $640 trillion derivatives market, which was then largely unregulated. But Europeans and the CFTC have butted heads over the issue of how the U.S. rules should apply abroad for the past year, with CFTC Chairman Gary Gensler blamed for his aggressive stance in how he wants to apply the rules abroad.
European regulators have countered that the CFTC's approach, which was first proposed last summer, could create duplicative regimes, and have urged the United States to let them regulate the banks on their own turf.
"This type of overlapping regulatory oversight could lead to conflicting or costly duplicative regulatory requirements. Market participants need to know which rules to follow - and I believe that this proposal will serve as the road map," said Ms. White, who was just sworn in as SEC chair last month.
[...]
The CFTC late last year granted broad exemptions that vastly scaled back the cross-border reach of its proposal, but these expire in the middle of July, and it has given no clues as to whether its final draft will be equally loose. The SEC's proposal on Wednesday reflects a less aggressive approach than what the CFTC had initially proposed, and are more aligned with the CFTC's less stringent, time- limited exemptions that are currently in place.
"The proposed rules approved today by the SEC provide yet another example of the significant difference in approach taken by each of the SEC and the CFTC," said Michael O'Brien, a partner at Winston & Strawn.
Others said that the two sets of rules ultimately might not come out all that differently, and that the SEC's more accommodating stance towards foreign regulators by no means meant it would be easier on the industry.
"The detail of the rules implies that it is by no means going to be a free pass," said Gareth Old, a lawyer at Clifford Chance in New York. "The (SEC) is going to scrutinize both non-U.S. regulations and also conduct by market participants in terms of how they use those regulations probably just as carefully as the CFTC."
[...]
Still, a few SEC commissioners on Wednesday flagged a variety of reservations with the plan. Commissioner Luis Aguilar, a Democrat, said he had concerns that the SEC's plan exempts foreign subsidiaries of U.S. firms from being dubbed "U.S. persons" - a category that subjects firms to certain SEC regulations.
"The proposed rules seem to assume that any failure by these foreign subsidiaries would not financially affect the U.S. parents," he said. "However, even without a legal obligation, a U.S parent company will likely step in to save its financially troubled subsidiaries ... The proposed rules do not appear to address fully these contagion and spillover risks."
Commissioner Troy Paredes, a Republican, raised completely opposite concerns, saying he has fears that trades cutting across international boundaries could still too often be captured by the SEC's rules.
Daily News (White Plains, NY)
May 02, 2013
http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsid=61783
Excerpts:
The top U.S. securities regulator unveiled a proposal on Wednesday [May 1] that spells out how its rules for swaps will apply to foreign banks, saying it hoped its proposal can resolve a brewing global conflict over how to regulate the $640 trillion market.
[...]
"This is particularly important because the global nature of this market means that participants may be subject to requirements in multiple countries," SEC Chair Mary Jo White said.
The SEC and another regulator, the Commodity Futures Trading Commission, won broad new powers in the 2010 Dodd-Frank Wall Street reform law to police the $640 trillion derivatives market, which was then largely unregulated. But Europeans and the CFTC have butted heads over the issue of how the U.S. rules should apply abroad for the past year, with CFTC Chairman Gary Gensler blamed for his aggressive stance in how he wants to apply the rules abroad.
European regulators have countered that the CFTC's approach, which was first proposed last summer, could create duplicative regimes, and have urged the United States to let them regulate the banks on their own turf.
"This type of overlapping regulatory oversight could lead to conflicting or costly duplicative regulatory requirements. Market participants need to know which rules to follow - and I believe that this proposal will serve as the road map," said Ms. White, who was just sworn in as SEC chair last month.
[...]
The CFTC late last year granted broad exemptions that vastly scaled back the cross-border reach of its proposal, but these expire in the middle of July, and it has given no clues as to whether its final draft will be equally loose. The SEC's proposal on Wednesday reflects a less aggressive approach than what the CFTC had initially proposed, and are more aligned with the CFTC's less stringent, time- limited exemptions that are currently in place.
"The proposed rules approved today by the SEC provide yet another example of the significant difference in approach taken by each of the SEC and the CFTC," said Michael O'Brien, a partner at Winston & Strawn.
Others said that the two sets of rules ultimately might not come out all that differently, and that the SEC's more accommodating stance towards foreign regulators by no means meant it would be easier on the industry.
"The detail of the rules implies that it is by no means going to be a free pass," said Gareth Old, a lawyer at Clifford Chance in New York. "The (SEC) is going to scrutinize both non-U.S. regulations and also conduct by market participants in terms of how they use those regulations probably just as carefully as the CFTC."
[...]
Still, a few SEC commissioners on Wednesday flagged a variety of reservations with the plan. Commissioner Luis Aguilar, a Democrat, said he had concerns that the SEC's plan exempts foreign subsidiaries of U.S. firms from being dubbed "U.S. persons" - a category that subjects firms to certain SEC regulations.
"The proposed rules seem to assume that any failure by these foreign subsidiaries would not financially affect the U.S. parents," he said. "However, even without a legal obligation, a U.S parent company will likely step in to save its financially troubled subsidiaries ... The proposed rules do not appear to address fully these contagion and spillover risks."
Commissioner Troy Paredes, a Republican, raised completely opposite concerns, saying he has fears that trades cutting across international boundaries could still too often be captured by the SEC's rules.
Tuesday, April 30, 2013
Central bank finances, by David Archer and Paul Moser-Boehm
By
David Archer and
Paul Moser-Boehm
This paper looks at the relevance of a central bank's own finances
for its policy work. Some central banks are exposed to significant
financial risks, partly due to the environment in which they operate,
and partly due to the nature of policy actions. While financial
exposures and losses do not hamper central banks' operational
capabilities, they may weaken the effectiveness of central bank policy
transmission. Against this backdrop, the paper analyses the determinants
of a central bank's financial position and the possible implications of
insufficient financial resources for policymaking. It also provides a
conceptual framework for considering the question of whether central
banks have sufficient financial resources.
JEL classification: E58, E61, G01, M41
BIS Papers No 71
April 2013
April 2013
JEL classification: E58, E61, G01, M41
Subscribe to:
Posts (Atom)
Posts
