Ten years after Lehman Brothers

The ten year anniversary of Lehman Brothers’ bankruptcy is fast approaching. Some quick thoughts on what has changed and what we’ve learned over the past decade, with a focus on Europe.

  1. Banks are much safer now than they were in the summer of 2008.
  2. There’s a remarkable lack of entrepreneurship in banking. A few fintechs offer payment services, but payments are only a small part of banking. Where are the new banks?
  3. Related to point 2, and something I’ve changed my mind about over the years: bailing out the banks was the right thing to do. I highly doubt that we would have experienced much creative destruction by letting the financial system collapse. That being said, the way the bailouts were done was horrible.
  4. The way the European establishment handled the euro crisis was an abomination. Fiscal and monetary coordination across Europe would have resulted in lower unemployment, lower debt, lower taxes.
  5. Notwithstanding the importance of money in people’s daily lives, financial literacy is still limited.

Down to the corporate side!

The Up to the Mountains and Down to the Countryside Movement was a government policy in the People’s Republic of China during the 1960s and 1970s. From Wikipedia: “privileged urban youth [were] sent to mountainous areas or farming villages to learn from the workers and farmers there.”

A lot of economists and economic historians study aggregated data, e.g. gross domestic product, inflation, trade flows, or productivity.

Such a high level approach is valuable. However, the macro perspective by definition misses the details. A macroeconomist will typically explain productivity growth by referring to increases in (human) capital and total factor productivity. But how exactly do concrete changes lead to higher output? Continue reading “Down to the corporate side!”

The most devastating cyberattack in history

Wired has a great article (warning: long but worth your time) on last year’s cyberattack. It started as part of the Russian cyberwar against Ukraine. Almost immediately, companies around the world became collateral damage. Andy Greenberg’s Wired story highlights the impact on shipping giant Maersk.

Just to illustrate the vulnerability of IT systems:

Maersk’s 150 or so domain controllers were programmed to sync their data with one another, so that, in theory, any of them could function as a backup for all the others. But that decentralized backup strategy hadn’t accounted for one scenario: where every domain controller is wiped simultaneously. “If we can’t recover our domain controllers,” a Maersk IT staffer remembers thinking, “we can’t recover anything.”

The total damage caused by the attack has been estimated at $10 billion…

A prediction about Turkish government debt

The central government debt of Turkey was 28 percent of the country’s gross domestic product (GDP) at the end of 2017.

Although making financial predictions is usually a fool’s game, I’m pretty confident that by the end of 2020, the central government debt of Turkey will be higher than 40 percent of GDP.

My prediction is based on the ongoing crisis. Private debt tends to become public debt in these circumstances. Because the debt is dollar-denominated, it cannot be inflated away.

Check this post in 2021!

If this was financial assistance, I’d hate to see the opposite

The European support program for Greece ends today. Some called the program a bailout, others assistance or solidarity. Whatever you call it, the outcome has been abysmal.

Greece fared worse than the US during the Great Depression. Emerging markets recovered faster from financial crises than Greece did. The only countries that have shrunk more than Greece in the past ten years are failed states like Libya, Yemen, and Venezuela.

“Congratulations” to all who were responsible for this “success”.

What type of banker are you?

Some years after the crisis of 2008, Dutch journalist and anthropologist Joris Luyendijk set out to learn more about the people in the financial industry. Through a series of interviews with bankers, he was able to paint an impression of what it’s like to work in London’s banks. Continue reading “What type of banker are you?”

Een boek schrijven is werken

Professor Jonathan Holslag neemt een sabbatjaar om na te denken en te schrijven. Blijkbaar is het zelfs op de universiteit lastig om diepgaande analyses te maken. Iedereen kent het wel: je dagen zitten zodanig volgepropt met vergaderingen, mails en andere administratieve overhead dat je bijna niet meer aan je hoofdtaak toekomt.

Academici hebben nog het voordeel dat ze hun papers kunnen gebruiken als basis voor een boek. Bij mij was dat niet het geval. Hoewel ik in een bank werkte, is Hoe bankiers geld scheppen niet gebaseerd op mijn toenmalige job. Toen ik besliste om mijn boek te schrijven, nam ik ontslag. Alleen zo kon ik voldoende tijd vrijmaken. Continue reading “Een boek schrijven is werken”