De la crise financire la crise conomique Roger

De la crise financière à la crise économique. Roger Guesnerie Collège de France, EEP/PSE

Introduction. …Crisis : un « fait économique total » . - History. The present events. Mechanisms. Institutions and organizations. Survey : subjective choice. - Crises in history. The illness and its therapies. Back on the diagnosis. Conclusion.

De la crise financière à la crise économique. Les crises dans l’histoire.

The history of crises: famous « Bubbles » . 17 th century : the « tulip mania » . – The dutch society fascinated by tulips, (Bruegel). – Futures for tulips. – From 1634 to 1637, – A speculative increase of prices. – 1637, example of a bulb price. – The price of 2 houses, 5 to 15 years of income of a craftsman. – February 1637 : the market collapses. – The end of « the trade of wind » « le commerce du vent » . – A speculative bubble. – Financial Crisis. 18 th century: « The South Sea Bubble » – 1711, the « South Sea Company » gets the management of the Britain debt, – 6/° interest + exclusivity of trade with latin America. – stratospheric price level 1720 -21, collapse in 1721. – Newton : « I can forecast the movement of planets, but I could not compute the madness of men. »

Les grandes crises : 1929, 2008. 1929. “The mother of all crises”. From the krach to the world crisis. – – A spectacular rise of the Dow Jones index. – From 1921 to 1929, increase of industrial production 50/°, of the Stock Exchange, >300/° – New system of credit for purchasing shares ? The krach – Contained on black Thursday, but – October 28, Black Monday : -13/°, then Black Tuesday, -12/°. An ongoing fall from 1930 to 1932. – Considerable losses. Trigerring a world crisis. 2008. The present crisis : « From sub-primes to depression » – A « local » crisis. The burst of the housing bubble in the States. – Connected with sub-primes loans. – Propagated to the world financial system. – Rescue of Northern Rock, then – Fall of Lehman Brothers, Sep. 2008, fall of Stock exchanges in the world. – A quick and synchronised transmission to the world economy. – 2008, 2009 – What next ? – V, U, V, W, L

Dot. com bubble. Source: Ofek and Richardson, 2003, Journal of Finance

What is a crisis ? The variety of crises. economic crisis and financial crisis. – Sectoral or general. – Geographic field que, local or global. What is a crisis ? – Dysfonctioning of a decentralised economy. – Decentralised means : actions taken by – millions of independant agents. – With their own objectives. – The opposite polar model : centralisation, the Gosplan. – Market economies are decentralized. – Synonym of capitalism ? – Yes, historically. Synchronisation of decentralised economies : mecanisms. – Price adjustement. – Adjustment of the views of the future : expectational coordination. – Crisis : brutal break – Of the path followed by the economy. – Of the collective image of the future associated with this path. – Quiet time : the image is approxiamtely selfulfilling.

De la crise financière à la crise économique. Le « mal » , sa transmission et la thérapeutique.

The disruption of the planet finance. The sub-primes crisis : A local fire ? – Risky loans, from « prime » to « sub-prime » . – To favour access property to the poorest houselholds. – Mortgage loans, sometimes 100/° or more of the house value…, – A break of the incentives system, increased by « titrisation » . – A self-sustained increase of the housing prices, Bubble… – Non sustainable. – A fire that could have been limited ? 2 to 300 Billions dollars. The shaking of the world financial system : « A big forest fire » – The imbrication of the actors : – sub-prime loans disseminated in the world – « sliced » (titrisés), out of the balance sheet. – Increase of risk premia, loss of confidence. – The Dominos effect, how to manage it ? – Rescuing Northern Rock, Fall of Lehman Brothers. – The collapse of the stock market. – To sell assets, cumulative loss, – Decembre 2008, SP 500, fall of stock exchanges

Titrisation et la chaine-de-credit - Initiation du prêt banque gèrant le prêt banque à l’origine du prêt Pool de prêts Investisseur Hedge Fund “Credit Enhancer” Sicav monétaires Assureur d’ obligations

From the financial crisis to the « real » crisis. The facts : A quick and synchronised depression. ? – – Decrease of Gd. P of developed countries starts at the fall 2008. – Japan tendancy -5/° , end 2008 – Lower production of 2/° Euro zone en 2009 ? – Increase of unemployment, 2 pts. – Transmission via international trade towards emerging countries. (China, ) 2009 contraction and rebounce. Mecanisms : « Wealth effect » , « credit crunch » – Wealth Effect. – Non expected loss of « permanent income » . – – – Housing. /holders of income indexed ont shares, Pessimism of wage earners, – Change of the image of the future : Increase of uncertainty. – Precautionnary savings – – Induces a reduction of consumption Or postponement of purchase. (durables) – Une contraction of the loans of the banking system, – credit crunch, – Pessimism on the future, lower self finance resources, reduced investment. – A cumulative recession mechanism.

Bitter remedies. An eclectic medicine : Between Friedman and Keynes. – – Shock therapies : forgetting principles. The influence of the monetarist interpretation of the 1929 crisis. . Keynes back through the window. Not to kill international trade. The 1929 lessons, according to Friedman. – – A disastrous monetary policy. Absence of rescue to the banking system. 2008, avoid the collapse of banks and the domino effect. But what about « moral hasard » ? John Maynard Keynes back. – Inject short run purchasing power. – Governement expenditures. To save private trade. – Trade contraction, the worrying example of 929. – Limiting the trade effects, – Cooperation reasserted, G 20

De la crise financière à la crise économique. Le diagnostic ?

A « carburator » failure? The car metaphor : Carburator versus motor. – – – The world financial system, the carburator. The world economy, the motor First thesis, a carburator failure ? The « overloaded » carburator » , logics of sophistication. – Recent evolutions : multiplication of actors. – End of Glass Steagall act de 1933, sep. Deposit and investment banks. – Hedge funds, special vehicles – Recent evolutions : multiplication of products. – Derivatives, example les options. – Credit Default Swap, la titritisation. – Argument, to improve the system’s performances. – Finance the economy – Share risk, mutualisation, completing the market. – Control through financial mathematics. The overloaded carburatorr « gonflé » , fragilities of sophistication. – Internal Opacity, modelling as a veil. – Exteranl Opacity, how to decipher products ? – « Systemic » Opacity. Expectational coordination, rationality, uncontrolled leverage effect? …

A poorly designed or poorly maintained « carburator » ? First thesis : the overloaded carburator. – More performance kills performance. – Who is responsible ? Bankers or …. – Regulators. Regulation failures ? Fragile sophistication. – The limits of internal regulations. – Financial mathematics and systemic risk. – The failure of notation agencies. – Opacity – And perverse incentives. Regulation failures ? how to forbid sophistication? – Knowledge uncertainty. Forbid sophistication ? – Regulation mistakes, Basel 2, naive regulators. – Does competition between regulators lead to regulation ? – A story at BDF Other chapters. – Fiscal paradises. – Remunérations of traders

The « motor » changes. The 19 th century globalisation. Mobility of goods, fix factors – The products are mobile, – Factors, land, labour, capital, immobile. – s Hekscher-Ohlin effects. The end of the 20 th century globalisation: « Sliced » production - « Sliced » production. : - The firms shops all over the world. - International trade through multi-national firms (1/3 of world trade). – Direct competition of labour factors when substitutes. – Winners and losers. And trade imbalances : The China savings. – Considerable financial flows, counterparts of trade flows. – Freedom of capital movements. – A post- Bretton-woods monetary system.

De la crise financière à la crise économique. Remarques finales en guise de conclusion.

Quid du (des) « conducteur(s) » ? Le « moteur » : La structure de l’économie. – La structure de l'économie mondiale est en mutation rapide. – Interactions commerciales et financière fortes entre économies – Qui ne perdront pas leur intensité dans le futur « Moteur et carburateur » : Crise du temps de la globalisation ou crise de la globalisation ? – L'excèdent d'épargne mondiale et les déséquilibres mondiaux: – Effet sur les taux d’intérêt, effet de levier – Sur-endettement et prise excessive de risque. – Robert Solow: “lorsque des flux énormes de capitaux liquides coulent à travers le monde il est possible qu’ ils débordent de leur vase” Le « conducteur » : Des erreurs de maintenance et de conduite. – Maintenance : les fautes de la régulation – Politique monétaire accomodante, expansion du crédit (Greenspan).

Capital mobility and crisis. Reinhart and Rogoff, (2008) “Banking Crises: An Equal Opportunity Menace”

Quid du (des) « conducteur(s) » ? Le « conducteur » : Les illusions de la grande modération. – les fautes de la régulation, Politique monétaire accomodante, expansion du crédit (Greenspan). – Le quasi-consensus de la grande modération. – Le calme avant la tempête ? – Libéralisation et crises ? ? – Frontières de l’Etat et frontières du marché…

Crise du temps de la globalisation, crise de la globalisation ? Des ingrédients communs à ttes les crises : /fondamentaux. – – le dés-ancrage « politique monetaire laxiste déreglementation ou liberalisation => Une phase spéculative: illusion d’ un nouveau modèle Anticipation de plus-values à court terme » Des caractéristiques spécifiques : Crise du temps de la globalisation ou crise de la globalisation ? – L’autonomie de la planète financière, – La mondialisation des échanges et les déséquilibres financiers. – La logique de circulation des capitaux et le système monétaire Les menaces: Les causes imparfaitement traitées. - Un système financier imparfaitement remis en ordre. - Les déséquilibres dus à l’épargne mondiale perdurent. - Le système de changes reste à réformer.

Qui est responsable?

FIN.